For this question,assume that firms experience a reduction in sales.We would expect that this decrease in sales will cause
A)an increase in profit per unit of capital.
B)a decrease in profit per unit of capital.
C)no change in profit per unit of capital.
D)ambiguous effects on profit per unit of capital.
E) none of the above

Question

Quizplus · Accepted Answer

A decrease in sales will likely lead to a decrease in profit per unit of capital, as the fixed costs of production will have to be spread over fewer units sold. This can lead to a lower profit margin per unit and ultimately result in a decrease in profit per unit of capital.

For This Question,assume That Firms Experience a Reduction in Sales